Consultative Meeting Highlights Changes in the Global Environment, Social and Governance Landscape

On the eve of the 2008 global financial crisis, traditional metrics and financial warning signals failed to alert investors to the risks that corporations and banks were facing.

Today, in the aftermath of the crisis, there is a growing awareness that corporate reporting as it used to be is no longer sufficient. In a global marketplace where non-financial issues such as carbon output, ethical supply chains, and  other sustainability concerns can have real financial consequences, reporting standards require a higher level of financial and non-financial disclosure to address the full range of corporate risks faced by companies, including environmental, social, and governance (ESG) factors. 

Against this backdrop of change, the Corporate Governance Group of IFC, a member of the World Bank Group, organized a global stakeholder consultation and practice group meeting to examine corporate governance codes, standards, and disclosure in the context of integrating environmental and social considerations with corporate governance.

Held in Vienna, the event represented the fourth annual meeting of the Practice Group on Codes and Standards. It brought together this informal community of worldwide experts on corporate governance codes, scorecards, standards and non-financial disclosure for two days of discussions, knowledge sharing and networking.

A highlight of the event was the launch of a new IFC publication, From Companies to Markets—Developments in Corporate Governance. Based on input from practice group members and discussions from the previous practice group meeting, the publication offers insight into ways in which companies of all sizes and industries—as well as governments and regulatory agencies—have elevated the corporate governance agenda. 

The event also highlighted corporate reporting and previewed a forthcoming IFC toolkit that will provide guidance on strategic, governance, and sustainability reporting. The toolkit will provide many practical, real world examples of good disclosure to help companies improve their reporting.

Link between corporate governance; environmental and social considerations

Another main focus of the meeting was on the increasingly intertwined nature of environmental, social and governance factors. During the stakeholder consultation meeting, group members discussed this connectivity, as they looked at ways to integrate these considerations with corporate governance frameworks through codes, guidelines, and standards.

The issue is of growing importance, participants noted. Because environment, social and governance considerations represent major risk factors for many firms, companies face ever greater pressure from regulators and investors to improve their non-financial disclosure. 

There are a large and rapidly growing number of ESG initiatives at the national and international level. Over $20 trillion is managed by institutional investors that incorporate ESG considerations into their investments, and national regulators are encouraging their domestic investors and companies to take a more responsible approach to investment and other activities.

It’s an even more critical issue for emerging markets and developing countries, where attracting investment can be difficult. “Improved corporate governance as a stand-alone is not going to encourage more private sector participation and investment in emerging markets and developing countries,” said Morgan Landy, director if IFC’s Environment, Social and Governance Department during informal remarks to the group. “This will require a more holistic approach that includes addressing environmental and social challenges that can otherwise deter investment or impact job creation, growth and poverty reduction.”

As the corporate governance landscape changes, IFC’s leadership role in this area will continue to evolve to meet new needs and address these issues in emerging markets, he said.

An important outcome of the stakeholder dialogue IFC is looking into developing a comprehensive environmental, social, and governance framework for emerging markets.

Based on its Corporate Governance Methodology and Performance Standards, the proposed framework would take a more broad-based view of these issues and use it as a basis for developing and reviewing existing codes and scorecards in emerging markets.


Related Links: 

Executive Summary: Consultation of the Practice Group on CG Codes and Standards

Agenda: Integrating Sustainability and Governance, the Role of Codes, Standards, and Disclosure

Publication: From Companies to Markets—Global Developments in Corporate Governance

Written Contributions

Photo Album: Stakeholder Consultation, Vienna, Austria, April 19-20, 2016

June 2016